FAQs Regarding COVID-19 and Human Capital, Tax Impact

  • Regulations
  • 3/20/2020

The Families First Coronavirus Response Act provides paid leave under the Family Medical Leave Act and paid sick leave for absences resulting from COVID-19. There are also refundable tax credits available to reimburse employers for wages paid as a result of the law.

In these unprecedented times, employers have to absorb information quickly and make decisions impacting their business, human resources, and communities. The business landscape is evolving rapidly as federal, state, and local authorities announce community action plans. Legislation will dictate many of the decisions employers make with little lead time.

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These frequently asked questions were designed to provide general guidance related to your human resources function and the related tax implications of this Act. Every employer’s situation is different, and the particular facts and circumstances of your situation should be evaluated.

For additional reading, see our article, “Pandemic Doesn’t Have to Mean Pandemonium in the Workplace.

Frequently Asked Questions:

1. What is the Families First Coronavirus Response Act?

Also known as HR 6201, the Families First Coronavirus Response Act is legislation created in response to the coronavirus outbreak, which provides free coronavirus screening, limited paid leave time, expanded Family and Medical Leave Act (FMLA), and greater unemployment benefits for individuals impacted by the coronavirus.

2. How does the Families First Coronavirus Response Act impact employers?

There are several areas in which employers will need to take action as it relates to their human capital and compensation for employees affected by the coronavirus.

Emergency Paid Leave requires employers to provide paid sick time of up to 80 hours for full-time employees who need time off for the following circumstances:

  • Quarantine order by federal, state, or local authorities related to COVID-19
  • Employee must self-quarantine as advised by a health care provider
  • Employee is experiencing COVID-19 symptoms and is seeking medical diagnosis
  • Employee is caring for an individual who is quarantined
  • Due to school or child care closures, an employee is unable to work to care for children

The paid sick time benefits will be capped at $511 per day for the employee’s own care, and $200 per day to care for another individual. Employees should be paid at the higher of the following:

  • Regular rate of pay
  • Federal minimum wage
  • Local minimum wage

Part-time employees should be paid for the average number of hours they would normally work over a two-week period.

Paid Family Leave (E-FMLA) is for employees who cannot work (or telecommute) due to child care concerns related to the coronavirus. If a minor child’s school or care facility is closed, the employee will be eligible for up to $200 per day, with a maximum of $10,000 through the end of the year. Employees are eligible for E-FMLA if they have been employed for 30 days.

3. What is a covered employer under the Families First Coronavirus Response Act?

All employers with fewer than 500 employees are covered under this Act. The Act provides exceptions for employers of health care providers. The legislation allows the Department of Labor to issue regulations granting employers with fewer than 50 employees an exemption from providing paid benefits if it “would jeopardize the viability of the business.”

4. When do employers need to begin paying employees these benefits required by the Families First Coronavirus Response Act?

The Families First Coronavirus Response Act is effective April 1, 2020.  

5. Do employers receive a tax credit under the Act?

The Act allows employers to claim a limited refundable tax credit that would equal benefits paid to employees for E-FMLA subject to the maximum per employee. There is also a credit for paid sick leave.

Details About the Refundable Employment Tax Credits

Q: Will employers be reimbursed for the leave they pay eligible employees under the Families First Coronavirus Response Act?

Employers will be reimbursed for every dollar of leave they pay to eligible employees under the Families First Coronavirus Response Act. The paid leave will be offset by a refundable federal employment tax credit. Since the credit is refundable, employers will receive full reimbursement for the paid leave regardless of their actual employment tax liability.

Q: Is a tax credit available for both sick leave and emergency family medical leave paid pursuant to the Families First Coronavirus Response Act?

There are two credits available to employers: a credit for paid sick leave and another credit for emergency family medical leave. The mechanics of the two credits are very similar.

Q: Can an employer receive a credit for qualified health plan expenses allocable to the paid leave?

Employers can receive an increase in the credits described above for qualified health plan expenses allocable to the leave they provide under the Families First Coronavirus Response Act. Qualified health plan expenses are amounts paid or incurred by an employer to provide and maintain a group health plan to the extent such amounts are excluded from the gross income of employees.

Q: Can employers deduct the benefits they pay employees under the Families First Coronavirus Response Act from gross income for income tax purposes?

Employers cannot deduct the amounts they pay eligible employees under the Families First Coronavirus Response Act if they receive a tax credit for the amounts paid. An employer can, however, elect to forego the credit and, in that case, the employer could deduct the amounts paid as they normally do for wages.

Q: Are self-employed individuals eligible for the tax credits?

Self-employed individuals are eligible for the tax credits if they would be eligible to receive paid leave as an employee.

Q: Are the tax credits for self-employed individuals limited to self-employment taxes?

The tax credits for self-employed individuals is available to offset all income taxes including self-employment taxes.

Q: Are the tax credits for self-employed individuals refundable?

The tax credits for self-employed individuals is refundable. Accordingly, if the credits are more than the self-employed individual’s income tax liability they will receive a refund.

Q: What if a self-employed individual is also an employee and receives benefits under the Families First Coronavirus Response Act that were paid by an employer?

A self-employed individual cannot receive leave benefits under the Families First Coronavirus Response Act paid by an employer and also receive tax credits on those same benefits as a self-employed individual (i.e., no double dipping).

Q: Will employers have to pay FICA taxes on the benefits paid to employees under the Families First Coronavirus Response Act?

Employers will not pay FICA taxes on leave paid pursuant to the Families First Coronavirus Response Act. Employers will not report Social Security (OASDI) tax on the benefits. Employers will report Medicare tax, but they will receive a dollar-for-dollar credit for the Medicare tax.

Q: Will employees pay income tax and FICA on the paid leave they receive pursuant to the Families First Coronavirus Response Act?

Employees will pay income tax and FICA (both SSA (OASDI) and Medicare).

Q: Are the benefits provided under the Families First Coronavirus Response Act permanent?

No, the benefits will expire December 31, 2020.

6. How do employers handle jobs that cannot be done remotely when businesses are permitted to continue operations?

Consider how to increase social distancing guidelines to create a six-foot distance between employees, which should include implementing procedures in all areas, including breakrooms, entrance points, restrooms, and other common areas. In addition, implement handwashing requirements and sanitation practices within the workplace. Review Occupational Safety and Health Administration (OSHA) resources.

7. How many hours is an employer obligated to pay an hourly-paid employee who works a partial week because the employer’s business closed?

Per the Fair Labor Standard Act (FLSA), employers are not required to pay nonexempt (hourly) employees who are unable to work due to business closure. If employees are covered by a collective bargaining agreement, this document should be reviewed for provisions that may require payments to be made.

8. Are employers required to pay exempt employees during office or business closures?

Exempt, salaried employees generally must receive their full salary in any week in which they perform work. Employers that have a paid time off or vacation plan can require exempt employees to use this time off, provided the employee continues to receive their normal weekly salary.

9. Are employees eligible for unemployment benefits (UI) during business closures?

Federal law permits states to have flexibility with their unemployment benefits related to COVID-19. Each state administers its UI benefits differently, and employers should review state specific information.

10. Can an employer take the body temperature of employees?

Generally, measuring an employee's body temperature is a medical examination. Because the Centers for Disease Control and Prevention and state and local health authorities have acknowledged community spread of COVID-19 as a pandemic, employers may measure employees' body temperature. However, employers should consider privacy measures and apply screening practices consistently.

11. Where can employers find state-specific action related to the coronavirus?

There are many resources available. CLA found the National Conference of State Legislatures (NCSL) to be a comprehensive reference.

How we can help

CLA’s human resources consulting and outsourcing professionals and tax professionals are here to help you navigate your organization’s specific circumstances during these uncertain times.

Remember to consult with qualified employment law counsel before adopting any new HR policies. You must also determine whether legal review of the work product is necessary prior to implementation.

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